Disney-Marvel: Anatomy of a deal

A case study on how the pact came about

Disney’s stealth buy of comic powerhouse Marvel galvanized Wall Street when it was unveiled in late summer. The $4 billion deal, negotiated during a particularly sluggish period for mergers and acquisitions, immediately sparked speculation about future media consolidation and stepped up pacts in general. But more than anything it solidified Disney CEO Bob Iger’s status as a leading media dealmaker.

Iger, who bought Pixar for $7.4 billion three years ago, inked a DreamWorks distribution deal in February, the same month he set the Marvel deal in motion. During a meeting with Marvel vice chair and exec VP David Maisel on Feb. 11, Iger casually mentioned his interest in buying the company. In early June, he mentioned it again, and Maisel duly notified CEO Isaac “Ike” Perlmutter, a formidable negotiator in his own right who had wrested control of Marvel from Ron Perelman and Carl Icahn in 1997 when the company was in bankruptcy.

Here’s a closer look at some of the players and negotiations:

Maisel (who on Dec. 7 announced he is stepping down from the studio when when the acquisition wraps up) had been a protege of CAA kingpin Michael Ovitz and followed him to Disney, where he served as director of development and planning. He joined Marvel from Endeavor. For this deal he negotiated initial terms with Disney senior exec VP and chief financial officer Thomas Staggs and exec VP corporate strategy Kevin Mayer. There was a lot of jockeying over the price.

John Turitzin, Marvel general counsel and exec VP, also played a key role, as did Carl Sanchez, partner, Paul, Hastings, Janofsky & Walker, who was lead outside attorney advising Marvel.

A Disney buyout, meanwhile, gives Marvel much more financial muscle to make films at a time when credit is still tight. It also gives Perlmutter, who told confidantes he planned to sell the company once he built it back from bankruptcy, a rich payday (he stands to make $1.44 billion.)

Sticking points in the negotiations centered on per-share price and stock-to-cash ratios. Marvel wanted mostly or all stock to avoid tax implications. Disney was unwilling to do that. According to an account filed with the SEC, Maisel started negotiations June 16 saying the Mouse House would have to pay “a per-share value starting with the number 5″ and that it would have “to be paid entirely or substantially in stock.” Staggs advised him Disney was unlikely to go for that price or a primarily stock-based deal.

During subsequent conversations, Maisel tried to persuade Mayer that such a deal was justified, and on July 8 he revisited the subject again during a meeting with Disney management.

Disney made its first offer July 10, according to the SEC filing, when Staggs proposed a value range of $46 to $48 per share with a to-be-determined mix of stock and cash. Marvel’s board rejected that offer July 28. A few days later, after a special meeting of Disney’s board, Staggs upped the offer to $50 per share, provided the portion of stock did not meaningfully exceed 40%.

Staggs and Marvel adviser Jeffrey Kaplan dickered over a price for 24 hours, with Kaplan pushing for $51 to $52 a share, but Staggs would not budge, and Kaplan finally acceded, provided all other merger terms could be resolved.

Then the real nitty gritty began. Outside counsel had their work cut out for them sorting out the rights issues and buttoning down deal-protection measures. They worked virtually around the clock the two weeks leading up to the Aug. 31 deadline. Sanchez said his team of 20 lawyers pored over IP documents and worked into the wee hours, going over each character in Marvel’s library. Pierce said his right-hand man, Chang-do Gong, went into overdrive as well. “I don’t think Chang slept for four nights straight,” he told Legal Week.

Terms of the merger were substantially concluded Aug. 29. On Aug. 30, Marvel’s legal team met with the company’s board: Turitzin went over Disney employment agreements for Marvel management. The Disney board met the same date.

The teams were just about to heave a sigh of relief, Pierce told the legal paper, when they discovered a key Marvel signature was missing at 2 a.m. on Aug. 31. Turitzin got the call: Wake up the exec.

Deadline made, the companies announced the deal before the New York Stock Exchange opened for the day. Now it’s up to Marvel shareholders to cast their vote.